Margins on platforms have been thin for years as companies look to low fees and prices to win clients.
But operating on paper thin margins can sometimes mean that ambitions and business plans have to be reassessed.
The lack of accessible finances leaves platforms rather static when trying to react to industry changes or the latest technology available.
International Adviser spoke to Quilter, SEI and Shard Capital to discuss what platforms can do to mitigate these problems and overcome them.
Race to the bottom
Karen Blatchford, distribution director of Quilter’s platform, said: “Platform pricing shouldn’t be a race to the bottom given that value for money is a combination of price and the quality of the proposition. Platforms need to be profitable to be able to continually evolve their propositions and find new ways to help advisers deliver a great service to their clients.
“Platform development has tangible value to both the adviser and their clients, and platforms that recognise this shouldn’t need to join the race to the bottom in terms of price.
“The pandemic was in many ways the ultimate test of platforms’ ability to be nimble and respond rapidly to changing circumstances. Necessity forced innovation and we must learn from that and continue to push the boundaries of what is possible; question the way things are done and seek to make the lives easier for those using the platform.
“The changes that have been made with things like digital signatures now have to be embedded as business as usual.”
Martin Steer, commercial director of SEI Wealth Platform UK, said: “When operating at thin margins, scale becomes key. This is as true today as it was 20 years ago. However, while you perhaps needed £1bn ($1.4bn, €1.18bn) of client assets to be at scale 20 years ago, you probably need about 10 times that in the retail platform space now.
“With platforms operating at thinner margins, price is no longer the differentiator it once was, and other factors have started coming into play. Re-platforming, though beneficial, can be challenging and time-consuming with the wrong provider and firms need to ensure that they do not focus too heavily on price. Partnerships have started getting longer, as firms must find a long-term partner rather than a vendor.
“Whilst there are thin margins in general, platforms are also constantly evolving to offer more solutions to end clients which gives them the ability to open up new revenue streams. For instance, in recent years, we have seen platforms offering their own funds and earning an income separate to the normal platform fee.”
‘Broader investment proposition’
The concept of what a platform can do for advisers and clients is changing, and things will not go back to how they were before.
Richard Bacon, head of sales and business development at Shard Capital, said: “In many ways, it’s not hugely different from Tesco and the like doing home delivery of your groceries.
“Things changed when market participants started so set up their own platforms which they could use as a loss leader or run at cost to aid the distribution of their product and control their pricing.
“If being a platform was your sole purpose in life, and you now had to look competitive, your margin was going to take a big hit. To my mind, going forward, ‘the platform’ has to be part of a broader investment proposition, and therefore the margin derived from it in isolation is less important.”